A Primer on African Market Integration with a Hard look at Progress and Challenges Ahead

Treaties implemented by Regional Organizations (ROs) among which the eight Regional Economic Communities (RECs) have piloted integration across the African continent. The recently created Africa Continental Free Trade Area (AfCFTA), effective since May 2019, is the latest effort along the roadmap started with the Abuja Treaty of 1994 and continued with the launch of ‘Agenda 2063' on the 50th anniversary of the OAU. This primer has three objectives: take stock of progress at market integration and understand the causes of the African ‘proximity gap'; summarize and provide new evidence on the extent of integration, and; discuss challenges ahead. The ambitious objectives of the AfCFTA among highly diverse economies is suggestive of a trilemma: (i) solidarity (calls for special and differential treatment); (ii) build large markets (calls for the removal of all policy-imposed barriers to trade to reap economies of scale); (iii) ‘deep' integration (calls for covering behind-the-border measures). The example of the negotiations for the Tripartite FTA illustrates the difficulties of accommodating differences in preferences in a group of 28 countries. This ambitious agenda in a setting of limited implementation capabilities raises the specter of capability traps. Lowering regional trade costs is key for a successful AfCFTA. Model-based calculations show that these costs have fallen over the last two decades, but not faster than elsewhere so that Africa has not improved its relative position. Estimates of the intensity of bilateral trade in parts and components are positively related to measures of ‘deep integration', an indication of the importance of tackling ‘behind-the-border' measures affecting trade, an objective of phase II of the AfCFTA. Estimates of the correlates of bilateral trade costs give support to measures promoting ‘deep' integration. An outcome indicator of the thickness of borders based on changes in light-intensity along all major cross-border African roads shows that over the period 2000-13, the thickness of African borders has fallen. All RECs are lagging MERCOSUR and ASEAN in supply chain trade. Over the 1990-2015 period, participation has been limited to the downstream side (i.e. value-added exports enter mostly as inputs into exports of importing countries) with partners outside the region which is in contrast with MERCOSUR and ASEAN where all value chains have developed with regional partners. In the case of ASEAN, the share of trade involving partners outside the region has stayed constant over the 25 period while the share of Regional Value Chain (RVC) trade only involving RTA partners has more than doubled from 7 percent to 17 percent. By 2015, ASEAN's RVC share was about 6 times higher than the RVC rate for SADC, the REC with the most RVC integration. This suggests that intra-regional trade costs have fallen in MERCOSUR and ASEAN but not across the RECs. In short, African countries still have to produce a complete product in order to enter a new product line. The review singles out two areas for reducing intra-regional trade costs: adopting simple rules of origin, i.e. rules that are business friendly rather than business owned (details in annex A3) and ‘taking seriously' the Trade Facilitation Agreement (TFA). New estimates suggest that if the average time in customs for imports at the African Union level were to be reduced to the average time for exports, that is reduced by 49 hours, this would be equivalent to a reduction of 2.7% on tariffs in importing countries. The greatest challenge ahead is increasing the provision of Regional Public Goods (RPGs). These are under-provided across the continent. Because this primer is mostly about economic integration, we only cover evidence of RPGs in two areas: peace and security and cross-border infrastructure. For both, the evidence suggests that provision of these RPGs has been low. Greater provision would be conducive, if not essential, to the success of African regional integration.

Jaime de Melo & Jean-Marc Solleder & Zakaria Sorgho, 2020. "A Primer on African Market Integration with a Hard look at Progress and Challenges Ahead," Working Papers hal-02972147, HAL.

Handle: RePEc:hal:wpaper:hal-02972147
Note: View the original document on HAL open archive server: https://hal.science/hal-02972147

as

HTML HTML with abstract plain text plain text with abstract BibTeX RIS (EndNote, RefMan, ProCite) ReDIF JSON